Estimation of Doubtful

Accounts
Three Methods of Estimating Doubtful
Accounts

 1. Aging the accounts receivable or “statement of financial position

approach
 2. Percent of accounts receivable or “statement of financial position
approach
 3. Percent of sales or “income statement approach”
Aging of Accounts Receivable

 The allowance is then determined by multiplying the total of each

classification by the rate or percent of loss experienced by the entity for
each category.
 “This method has the advantage of presenting fairly the accounts
receivable in the statement of financial position at net realizable value.
However, it violates the matching process.”
Percent of Accounts Receivable

 A certain rate is multiplies by the open accounts at the end of the period
in order to get the required allowance balance.
Example:
The balance of accounts receivable is P2,000,000 and the credit balance in
the allowance for doubtful accounts is P10,000. Doubtful accounts are
estimated at 3% of Accounts Receivable. Compute for the total Allowance
for Doubtful accounts after adjustment.
Percent of Sales

 The following accounts are gathered from the ledger:

Accounts Receivable 1,000,000
Sales 5,050,000
Sales Return 50,000
Allowance for doubtful accounts 20,000

**Prepare the journal entry and compute for the total allowance for doubtful
accounts***